Academic journal article Economic Quarterly - Federal Reserve Bank of Richmond

Flows to and from Working Part Time for Economic Reasons and the Labor Market Aggregates during and after the 2007-09 Recession

Academic journal article Economic Quarterly - Federal Reserve Bank of Richmond

Flows to and from Working Part Time for Economic Reasons and the Labor Market Aggregates during and after the 2007-09 Recession

Article excerpt

While the unemployment rate is one of the most cited economic indicators, economists and policymakers also examine a wide array of other indicators to gauge the health of the U.S. labor market. One such indicator is the U-6 index, an extended measure of the unemployment rate published by the Bureau of Labor Statistics (BLS). In addition to unemployed workers, the U-6 index includes individuals who are working part time for economic reasons and individuals who are out of the labor force but are marginally attached to the labor market. Individuals are classified as working part time for economic reasons (henceforth, PTER) if they work fewer than 35 hours per week, want to work full time, and cite "slack business conditions"* 1 or an inability to find a full-time job as a reason for not working full time. On average, from 1994-2014, 2.4 percent of the civilian noninstitutionalized population 16 years and older are classified as PTER. In 2009, this share reached 3.8 percent.2

Part-time employment for economic reasons has become a concern since the 2007-09 recession because, even though the numbers of unemployed and marginally attached individuals have been decreasing since 2009, the number of individuals who are working part time for economic reasons has remained elevated.3 During the 2014 Economic Symposium in Jackson Hole, Wyo., Fed Chair Janet Yellen noted that the elevated number of workers who are employed part time but desire full-time work might imply that the degree of resource underutilization in the labor market is greater than what is captured by the standard unemployment rate (Yellen 2014).

In this article, we first use cross-sectional data to evaluate whether part-time employment for economic reasons differs from full-time employment or part-time employment for noneconomic reasons such as childcare or other family reasons (henceforth, PTNER) along dimensions other than hours (i.e., observable characteristics of workers and wages). We then examine whether the changes in the labor market flows in and out of PTER during and in the aftermath of the 2007-09 recession can account for any of the changes in unemployment.

We find that PTER workers are typically less educated than fulltime or other part-time workers and are typically employed in middleor low-skill occupations. On average, PTER workers earn 19 percent less than full-time workers and 9 percent less (per hour) than PTNER workers, even after controlling for sociodemographic and occupational characteristics. The differences persist if we compare wages of PTER to wages of other workers within broad occupational categories. More research, however, is needed to understand whether PTER workers are workers who cannot find full-time jobs because of bad luck or because of structural reasons.

We now turn to the question of PTER and unemployment. Note that the number of PTER workers at any point in time (i.e., stock) is affected by the number of workers who worked PTER in the previous period and continue to do so, as well as the number of workers who transition (i.e., flow) into PTER from full-time employment, other parttime employment, unemployment, and out-of-the-labor-force (OLF) and the number of workers who transition from PTER into these other labor market statuses. Similarly, the flows into and out of PTER impact other labor market aggregates-full- and part-time employment, unemployment, and OLF. In this article, we decompose the changes in stocks of full-time employed, PTNER, unemployed, and OLF due to the changes in the flows of workers to and from PTER in the aftermath of the 2007-09 recession. Of course, the flows are in turn determined by fundamental factors affecting households' and firms' behavior. Nevertheless, it can be instructive to look at such decomposition. To this end, we perform a counterfactual exercise by fixing the transition probabilities between PTER and other labor force statuses at their respective sample means, and constructing the counterfactual time series of the labor market aggregates. …

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